Earnings Quality of Business Group Firms: Evidence from Taiwan

DOI: 10.5176/2251-1997_AF13.26

Authors: Yan-Jie Yang, Qian Long Kweh, Ruey-Ching Lin

Abstract:

In this paper, we examine the effect of business group affiliation on earnings quality for the period from 2000 to 2010. We employ accrual persistence, earnings management, and
conservatism as proxies for earnings quality. Our findings show that business groups exhibit a lower quality of accrual persistence, a greater propensity to manage earnings, and a less
conservative report as compared to non-business groups. These findings support the information asymmetries hypothesis that the complex structure of business groups provides greater room for the controlling shareholders to manage earnings. These results have policy implications with regard to monitoring in business groups in general and those in Taiwan in particular.